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New Premium Tax Credits: A Health Care Game Changer

Ron Pollack

Obamacare was designed to give peace of mind to hard-working American families. And starting in January, it will do just that for millions of Americans. In fact, according to "Help Is at Hand: New Health Insurance Tax Credits for Americans," Families USA's latest report on nearly 26 million Americans becoming eligible for new premium tax credits, this new help will soon make private health insurance much more affordable.

Premium tax credits will be available to individuals and families with incomes up to 400 percent of poverty, which translates to $45,960 for an individual and $94,200 for a family of four. The tax credits will ensure that moderate-and middle-income individuals and families will not have to spend more than a set percentage of their incomes on health insurance.

The size of the credits will be determined on a sliding scale based on income, so those who have lower incomes will receive a more substantial benefit than those with higher incomes. The tax credit will be used to purchase health coverage from a range of plans in new health insurance marketplaces, otherwise known as "exchanges."

The tax credits will act like subsidies, in that individuals and families will receive help as they buy insurance, rather than having to wait until they file taxes to receive reimbursement through a tax refund. And the help is available to individuals and families even if they don't owe any taxes. The size of the tax credit is calculated based on one plan offered in the new state marketplaces -- the so-called "silver reference plan." However, once the size of the credit is determined, it can be used toward the purchase of any private plan in the marketplace that the individual or family chooses to purchase.

The Johnsons, a family of four (two adults, two children under age 18), with an annual income of $35,300 (about 150 percent of poverty): If the annual premium for the silver reference plan for family coverage in the state marketplace in the Johnsons' zip code is $12,500, the family's out-of- pocket contribution for premiums for a silver reference plan would be about $1,410 (about $118 a month). The remainder of the family's premium for the silver reference plan would be covered in the form of a tax credit of $11,090. (That amount could also be credited toward premiums for a more or less expensive plan of the family's choice).

Taking a deeper look at the people who will be eligible for the premium tax credit, our report estimates that, in 2014, a large majority of those eligible for these new premium tax credits -- about 88 percent -- will be in working families. All age groups will benefit from the tax-credit premium subsidies, from hard-working Americans supporting their families to young adults who are just starting their careers.

The tax-credit subsidies have become a health care game changer. These tax credits will help make health coverage affordable for a huge number of uninsured families. Moderate- and middle-income families won't have to worry about being priced out of the health coverage and care they need. This assistance will also bring peace of mind to individuals and families who may have a pre-existing condition or who change jobs and experience a subsequent drop in income.

As we draw closer to the start of the open enrollment period in October, it is essential that states across the country work to inform their residents of this opportunity for assistance. Come January 2014, comprehensive, affordable health coverage will finally become a reality for millions of Americans.

If you would like more information on national, state, or county-level estimates of the number of people eligible for the new premium tax credits, I invite you to read Families USA's Help is At Hand report.